FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2014

Fair value measurements are estimated based on valuation techniques and inputs categorized as follows:


•	Level 1 — Quoted prices in active markets for identical assets or liabilities;


•	Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and


•	Level 3 — Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using discounted cash flow methodologies, pricing models, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following fair value hierarchy table presents the components and classification of the Company’s financial assets and liabilities measured at fair value as of June 30, 2014 and December 31, 2013:



	As of June 30, 2014										As of December 31, 2013
	Carrying Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Carrying Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents⁽¹⁾	$	14.6		$	14.6	$	—	$	—		$	171.3		$	171.3	$	—	$	—
Available-for-sale equity securities⁽²⁾	4.9			4.9		—		—			—			—		—		—
Total financial assets	$	19.5		$	19.5	$	—	$	—		$	171.3		$	171.3	$	—	$	—
Cash equivalents⁽¹⁾	$	14.6		$	14.6	$	—	$	—		$	171.3		$	171.3	$	—	$	—
Marketable securities	4.9			4.9		—		—			—			—		—		—
Total financial assets	$	19.5		$	19.5	$	—	$	—		$	171.3		$	171.3	$	—	$	—
Liabilities:
Acquisition-related contingent consideration	$	(327.0	)	$	—	$	—	$	(327.0	)	$	(355.8	)	$	—	$	—	$	(355.8	)

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(1)	Cash equivalents include highly liquid investments with an original maturity of three months or less at acquisition, including money market funds reflected in the balance sheet at carrying value, which approximates fair value due to their short-term nature.


(2)	For the three-month period ended June 30, 2014, the Company recorded a gross unrealized gain on the available-for-sale equity securities of $4.3 million in other comprehensive income (loss).

In addition to the cash equivalents (described under the table above), the Company has time deposits valued at cost, which approximates fair value due to their short-term maturities. The carrying value of $31.2 million and $25.2 million as of June 30, 2014 and December 31, 2013, respectively, related to these investments is classified within Prepaid expenses and other current assets in the consolidated balance sheets.

There were no transfers between Level 1 and Level 2 during the six-month period ended June 30, 2014.

Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)

The fair value measurement of contingent consideration obligations arising from business combinations is determined using unobservable (Level 3) inputs. These inputs include (i) the estimated amount and timing of projected cash flows; (ii) the probability of the achievement of the factor(s) on which the contingency is based; and (iii) the risk-adjusted discount rate used to present value the probability-weighted cash flows. Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement.

The following table presents a reconciliation of contingent consideration obligations measured on a recurring basis using significant unobservable inputs (Level 3) for the six-month period ended June 30, 2014:



	Balance, January 1, 2014			Issuances^(a)			Payments^(b)		Net Unrealized Loss^(c)			Foreign Exchange^(d)			Transfers Into Level 3		Transfers Out of Level 3		Balance, June 30, 2014
Acquisition-related contingent consideration	$	(355.8	)	$	(49.1	)	$	90.4	$	(10.8	)	$	(1.7	)	$	—	$	—	$	(327.0	)

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(a)	Relates to a contingent consideration liability assumed in the Solta Medical acquisition, as well as contingent consideration with respect to other smaller acquisitions, as described in note 3.


(b)	Relates primarily to payments of acquisition-related contingent consideration related to the OraPharma Topco Holdings, Inc. and Eisai (Targretin®) acquisitions and the Elidel®/Xerese®/Zovirax® agreement entered into with Meda Pharma SARL (“Meda”) in June 2011 (the “Elidel®/Xerese®/Zovirax® agreement”).


(c)	For the six months ended June 30, 2014, a net loss of $10.8 million was recognized as Acquisition-related contingent consideration in the consolidated statements of income (loss). The acquisition-related contingent consideration net loss was primarily driven by fair value adjustments to reflect accretion for the time value of money related to the Elidel®/Xerese®/Zovirax® agreement.


(d)	Included in other comprehensive income (loss).

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

There were no significant assets or liabilities that were re-measured at fair value on a non-recurring basis subsequent to initial recognition in the six-month period ended June 30, 2014.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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